Contrarian Stock Market Investing News - Featuring Bargain Stocks » diesel

Crude Plunges

Doug Casey — Fri, 20 Jun 2008 22:58:11 +0000

In the energy market Thursday, crude for July delivery plummeted, closing at $131.93/barrel, down $4.75. July reformulated gasoline plunged 11.4 cents, to $3.3526/gallon.

Market participants shrugged off supply threat news from Nigeria. Royal Dutch Shell reported that it had shut in production at its main offshore oil field after an attack by boat by local militants. The Shell platform produces 200,000 barrels a day.

Instead traders focused on a decision by China’s National Development and Reform Commission to raise gasoline, diesel and jet-fuel prices by 17, 18 and 25%, respectively.

“This follows the trend of other Asian countries reducing government fuel subsidies, which should, over time, put a dent in demand,” said analysts at Action Economics.

However, Sean Brodrick, a natural resources analyst for MoneyandMarkets.com, wrote that “oil bears and stock bulls alike are seizing on this news from China like drowning men grasping at lifelines … [but] I hope they can live with disappointment.”

Upping China’s gasoline and diesel prices by 46 cents a gallon, is “probably not enough to have much impact on existing demand,” Brodrick said.

Source: Crude Plunges

A Six Month Trade for 40%

Ian Davis — Thu, 12 Jun 2008 20:43:24 +0000

I’ve been bearish on oil refiners for nine months…

The situation for oil refiners in mid-2007 was just too good. Their profits were far too large. I didn’t think the stocks could go any higher. Here’s why…

A refinery converts crude oil into usable products like diesel and gasoline. Its profits come from the “crack spread,” which is the difference between the cost of oil and the price of gas or diesel. The best situation for these companies arises when the crack spread is large and they can sell their product for a high amount relative to crude oil. This situation arose in mid-2007…

Between February 20 and March 28, the average price of unleaded gasoline rose 49.4%, but the price of crude oil only rose 21.1%. This led to huge profit margins for the oil refiners… profit margins that seemed likely to persist.

You see, demand for petroleum products was growing, and no new refineries were being built. The last new refinery in the United States was constructed in 1976. Major hurdles prevent the construction of new refineries: financing a new project, getting permits, dealing with the environmental concerns.

And refineries experienced more than 30 unplanned outages in the U.S. in April 2007. Because of these outages, 400,000 fewer barrels of oil were being processed into gasoline each day, driving gas prices higher.

———- Advertisement ———-
What are you doing on Thursday, June 12th?

This is the last day to take full advantage of what millionaire S&A analyst Jeff Clark describes as: “The Single Best Income Strategy Ever Created.”

Free report explains the urgent details. Click here.
————————————

This is why most people thought I was crazy when I made a bearish call on refiners in a June 2007 issue of the S&A Digest. Investors were making money on refiners hand over fist, and the stocks were priced as if the good times would continue forever. Refiners were the darlings of Wall Street.

I disagreed…

Refinery outages are temporary problems, and simple economics says demand will moderate as prices increase. Less demand from consumers, along with the same level of gasoline production, leads to lower gas prices. So I knew these margins had to shrink.

As it turns out, I was right. By last month, refiners’ profit margins had disappeared… and with them went the refiners’ stock prices. An index of the four largest refiners fell by half.

Today, however, we are in the opposite situation. The price of oil has outrun the price of gasoline, and oil refiners’ margins are terrible.

The following chart shows my crack-spread indicator (a ratio of the price of gasoline to the price of oil) compared to an index of oil refining stocks. If the gray line is above zero, the crack spread is above its average level. If it is below zero, it’s below average.

Refining Stocks Are Up 10%
and the Crack Spread is Improving

As you can see, the crack spread has risen substantially from its March low.

Oil refiners are cheap, they are rallying, and investment banks are upgrading the stocks. Unfortunately, there is no refiner ETF. But here’s a look at the four largest U.S. refiners…

Company	Price to Earnings	Price to Book	Yield
Tesoro	6.6	1.2	1.5%
Holly	9	3.9	1.3%
Valero	7.7	1.4	1.2%
Sunoco	8.1	2	2.7%

As you can see, all of these stocks are extremely cheap right now. And I believe the worst is now over for oil refiners. The situation is going from bad to less bad. The last time oil refiners were in this situation, the refiner index rallied by 40% in the following six months.

Good investing,

Ian

Source: A Six Month Trade for 40%

Are We Witnessing the Slow Death of the American Dream?

Kevin Kerr — Tue, 03 Jun 2008 20:33:37 +0000

The world keeps turning and the resources get used up. It’s really quite simple.

Despite that fact, the debates rage over Peak Oil, Peak Food and peak everything else. It’s about as sensible as rearranging deck chairs on the Titanic. So the “experts” continue to debate whether or not resources are running low. But the evidence is pretty clear, at least to this trader.

In the past year, we have seen the oil and agriculture markets explode. And this could be just the beginning of the rally, not the end, as some would have you believe. Personally, I think we are about halfway to the new top for many commodities. That means $200 oil (easily) and gold at $1,500-2,000. The agriculture markets have even further to go, in my opinion.

Key commodities are becoming more and more scarce. So we can expect to see more suffering in the poorest countries first. Then the economic impact will work its way up the food chain (no pun intended).

The facts are fairly grim if we look at them closely. There is going to be less of everything. Yet there will be more people who want those things. Let’s face it – wars have been fought over far less.

In her famous book, On Death and Dying , Elisabeth Kubler-Ross describes the stages of grief:

· Denial: “It can’t be happening”
· Anger: “Why me? It’s not fair”
· Bargaining: “Just let me live to see my children graduate”
· Depression: “I’m so sad, why bother with anything?”
· Acceptance: “It’s going to be OK.”

In my opinion, the American public is going through the stages of grief right now. Rising prices are just a market-based signal that we are losing our economic and resource abundance. As the American dream fades away, it’s like a death in the family.

Right now, I think we are between the stages of denial and anger. Ask yourself these questions: What do you think when you pull up to the fuel pump and have to pay $4 for a gallon of regular gas, or nearly $5 for a gallon of diesel? Or how about when you go to the supermarket and have to pay $4 for a gallon of “store brand” milk, or the same price for a loaf of “store brand” bread? Are your emotions between disbelief and anger? Are you saying to yourself, “Hey, what the heck is going on?” (I’m cleaning it up a bit because this is a family-friendly publication.)

I think folks mistakenly thought prosperity would go on forever.

Dinner is always fun until the waiter brings the check. Or as my colleague Byron King once said, “It’s easy to look rich as long as you don’t ever pay the bills.”

No sector has recently hit Americans in the wallet harder than energy. But even with those dramatic price increases, major changes are still not happening. We have seen a very small decrease in gasoline usage – only about 1% or so.

But while some travel may be down as costs have gone up, the numbers are not really dramatic. No, I am not pointing fingers. I live here too. If I looked at my own lifestyle, I couldn’t say that I am making radical adjustments, either.

We still like to drive our big SUVs. We still drive alone to work. Most people rarely take public transportation (if there is any). And we love to run our air conditioners full blast while watching the documentaries on global warming and dying polar bears on our 62-inch plasma TVs.

Yes, we like to grumble when we fill up those big SUVs, mostly because it’s easier to complain than make the tough changes that are needed. We feel entitled to keep living as we do. Hey, after all, we’ve earned it. Right?

Rather than make difficult choices, we are in that denial stage and buy the line from the government and media that all is well.

The facts and the fiction often get mixed up when discussing the issue of “Peak Everything.” Take the surging price of crude oil. Some people (including a lot of politicians) want to blame the traders and speculators. Other people blame farmers and corn-based ethanol. A lot of people blame OPEC. The list of culprits goes on ad infinitum.

The fact remains that it’s not just one reason or another that we are in this energy disaster; it’s actually all of these reasons and others. It’s a culmination of many years of poor energy policy, shortsighted planning (if you can even call it planning) and an overdose of arrogance that only superpowers can have.

It’s like a football team saying, “We’re No. 1 and will always be that way.” So the team stops training hard. Players quit working out and coming to practice. The coaches just relax and forget about recruiting or developing new talent. Nobody designs new plays or bothers to scout the opponents to see what they are up to. And then the team expects to go out into the world and bring home the trophy every year. “Hey, we deserve it. Right?”

Or go back to the analogy of the Titanic. The ship was state-of-the art. It was not “supposed” to be able to sink. But now as the water rushes in and the ship is dropping lower and lower into the sea, the cold water is hitting us all in the face. Now our lawmakers are scrambling to plug the holes, and it’s not working. The smart people (or maybe they were just lucky) are already in the lifeboats.

Only time will tell if the United States can actually move into the acceptance stage. But in the meantime, commodities will continue to dwindle.

Regards,

Kevin Kerr
for The Daily Reckoning

P.S. As the price of commodities contains to rise, there will be incredible opportunities to profit as investors. These opportunities will abound, as they always do when stupid decisions are being made…and you can bet that Bryon King and myself will alert our Outstanding Investments readers to where this opportunities for profit are hiding. If you aren’t yet a subscriber, there’s never been a better time to discover the world of natural resources. Click here for all the details .

US Cuts Oil Imports for the First Time Since 1977

Contrarian Profits — Tue, 20 May 2008 16:00:18 +0000

The US is finally doing something about its addiction to foreign oil, according to a report from the Department of Energy.

The report says America’s foreign oil dependency is expected to fall from 60%, to 50% in 2015. The projected reduction is due to high crude oil prices, more efficient cars, and the use of ethanol, which have cut imports of oil to the US for the first time since 1977.

The trend is likely to have significant implications for US national and foreign policies, reports the Financial Times:

… it [will be] harder to prove the case for drilling in Alaska’s Arctic National Wildlife Refuge and to reverse the ambitious biofuels production targets regardless of their impact on global food prices.
…

US Oil Refiners to Cash In on Global Diesel Boom

Contrarian Profits — Mon, 19 May 2008 19:48:04 +0000

As high prices at the pumps and the rise of biofuels cut into demand for gasoline, US oil refiners are switching their attention to diesel.

“The trend that is important behind the story of the future expansions is the downtrend in gasoline,” said Joanne Shore, analyst for the U.S. Energy Information Administration, speaking to Thomson Reuters.

“We feel that demand for distillates is going to be higher than gasoline for the next several years. And margins right now for distillates are quite a bit higher than gasoline, so it makes more sense to do your investments there than other projects,” Valero Energy Corp spokesman Bill Day said, in the same article.

Demand for diesel is increasing globally, with China and Europe playing a major part in driving prices up. This from Bloomberg:

China is pushing the price of diesel fuel higher by stockpiling it ahead of both the Summer Olympics and the need to rebuild Sichuan province after last week’s earthquake … The country is hoarding the fuel in the event that its power grid fails and it needs to use backup generators.

Low inventories in Europe are also pressuring diesel prices, which have risen 53 percent in the last year in the US, compared with a 20-percent increase in gasoline.

Tom Dyson in Daily Wealth says, “I’m trying to figure out if ethanol’s a good investment. Frankly, I haven’t made up my mind yet. The fortunes of the ethanol industry depend on the government. Without the government’s support, the ethanol industry wouldn’t exist in America. So to invest in ethanol, you have to know what the government’s going to do.

“John McCain hates ethanol. If he wins the election, he’ll remove all the ethanol subsidies and hurt the farm economy. If the Democrats win, they’ll keep the subsidies in place, and ethanol stocks will probably take off.”

Huge Buying Opportunity in Solar-Pumped Water

Jim Nelson — Wed, 30 Apr 2008 15:24:46 +0000

One of the largest problems for farmers is getting sufficient supply of water to their fields. The other problem — which Kevin Kerr, editor of Resource Trader Alert, recently wrote about — is the cost of fuel.

You’ve heard the stories about truckers striking on highways and national “Don’t gas up” days, and now you are starting to hear about farmers unable to fuel their tractors. That’s a major concern as the price of diesel — which is used in over 95% of tractors and other farm equipment — reaches $4.25 per gallon.

Even if you read Kerr’s blurb, you may not be aware of the impacts that fuel and electricity prices have on water supply. We’re talking the powering of irrigation equipment…

Today, dear reader, we have the solution…and one micro-cap with the technology to solve this problem…

**********Time Is Running Out **********

“If the Millionaire’s Market Makes You So Much Money, Why Don’t You Just Keep It to Yourself? Why Release This Information?”

Answer: I DO use my guest pass to make money each and every day. But with 1,633,894 transactions per day, there’s more than enough for you, too.

I don’t want to ever be accused of front-running a recommendation. So here’s my promise to you in plain English — I’ll never personally play the recommendations I give you.

So if you think about it, it’s a win-win. I get to continue doing what I love…while still giving you the guest pass and specific instructions on how you could make money for yourself!

Check it out now…

***********************************

The story of 2007 was solar power. We’ve talked about it a hundred times. Everyone that was interested in the next big alternative energy last year bought every company even remotely connected to solar power. Take for instance First Solar…

As you can see, investors bid the price of this stock up to $267 per share from $28.50 in just a few months. Well, the same is true for this next company I recently stumbled upon. However, this one should outperform the rest this year.

Worldwater & Solar Technologies, Inc. (WWAT: OTC) is a solar technology development company that focuses on farmers’ needs. The company’s lead product, AquaMax, is the simplest answer to the highly complex irrigation problem.

You see, powering the massive irrigation systems of our beloved Great Plains is a huge problem. Sure everyone is focusing on how to bring new energy onto the grids, but no one — that is until now — has thought outside the box (or grids in this case).

AquaMax is a very simple, yet innovative, development. It works like this…

A series of solar panels are set up on the farm, which tie into the power grid already in place. This gives the farmer his own secondary source of power, which juices up the underground water pumps used in the irrigation system:

This does a number of things, which the company’s website does a great job of explaining in this chart:

Car Companies Target Customers and Each Other in Hotly Contested Asia Battleground

William Patalon III — Tue, 22 Apr 2008 13:53:33 +0000

The automobile industry is in the midst of a huge change, with more buyers overseas than ever before. Meanwhile, U.S. car manufacturers are struggling to stay float.

A special report jointly developed by U.K. affiliate MoneyWeek Magazine and the experts at Money Morning explores the automobile industry and how investors can benefit. For more information on MoneyWeek, please click here.

Every automobile on the roads of the world reflects a long and complex chain of industrial production and energy usage. Yet we live in a world where many of the highest quality resources and energy supplies have already been exploited and lower quality resources are more expensive to extract and exploit, if they are even available. So the world’s automobile industry is in the midst of a revolution in both resource availability and energy consumption.

Today the automobile business is vast. It is a global industry that has evolved by leaps and bounds in the 100 years since Henry Ford made his famous remark in 1908 about building “a car for the great multitude.” The worldwide customer base includes at least a billion people – spread over six continents – who have sufficient income to buy a car or small truck.

According to figures assembled at the MIT Sloan Automotive Laboratory, there are about 700 million automobiles and light trucks in the world. About 30% of those vehicles are in North America.

Every car requires steel, aluminum, copper and lead. Each car requires rubber, plastic, and myriad of other petroleum and natural gas by-products. And there is much else in the long industrial ladder of automobile production. Just think in terms of the energy that goes into processing materials, fabricating parts, building components, assembling a finished product – and all the transportation along the way.

In addition to the basic energy and material resources that go into manufacturing an automobile, the sheer number of vehicles reflects a lot of fuel tanks to fill with gasoline and diesel. And this does not even touch on the energy and resources that go into building road systems.

Oil Crises – 25 Years Ago and Today

The oil shocks of the 1970s – in both price and availability – spurred improvements in auto energy efficiency within the United States as well as worldwide. In the United States, the increase in fuel efficiency was related to rising costs for gasoline, as well as government mandates for higher fuel efficiency dating from the late 1970s.

On average over the past 25 years, the typical power train of gasoline-fueled automobiles in the United States has improved in efficiency by about 1% per year according to data gathered by MIT. While discrete, 1% improvements may not appear to be much, the compound improvement in the typical U.S. automotive engine over 25 years has been about 30%.

There has been even more progress in the fuel efficiency of diesel engines over the past 25 years. Diesel power trains are no longer the sooty “knock-knock” devices that they were back in the days of disco. Most cars sold today in the European Union (EU), for example, are powered with clean-burning, fuel efficient, smoothly running diesel engines.

In fact, the demand for diesel fuel in Europe is such that EU refineries routinely ship surplus gasoline to sell in the North American market. And in North America the relatively low prices for gasoline throughout the 1980s and 1990s discouraged the use of diesel engines.

So there have been significant improvements in automobile power train efficiencies over the past couple of decades. But have these improvements translated into any overall reduction in demand for fuel? No.

In 2007, motor fuel consumption in the United States was as high as it has ever been (Although according to the American Petroleum Institute, demand for motor fuel may be at a plateau due to price increases at the pump in 2006 and 2007.). In the past 25 years, we’ve seen more people driving more cars for more miles. But compounding the fuel issue, the cars that people are buying and driving tend to weigh more and offer higher performance.

Is a Car-dependent Culture Sustainable?

We live in a world of peaking oil output, and of energy and resource scarcity. So the trend lines for fuel usage by automobiles simply cannot continue for much longer. The most obvious sign is the rising price for oil and by extension for fuel at the pump. Something has got to give, and the energy markets are sending signals of long-term high prices for motor fuel. Where do we go from here?

Well first, people and policy makers have to realize that there is an energy problem. Everyone has to realize that this is something permanent, going forward. “Peak Oil” will not pass if we ignore it long enough. And no one can solve the problem just by bellyaching about the rising price for gasoline.

It helps to view the age of the automobile – and its future – as a systemic whole. And some social critics are out in front of the broad discussion, with a sharp focus on the automobile and what it has brought us as a society. James Kunstler, for example, author of highly regarded books such as The Geography of Nowhere and The Long Emergency, believes that the car-dependent suburban build-out in the United States may be “the greatest misallocation of resources in all of human history.”